German Fraud Probe Widens

Authorities are already probing staff at Commerzbank AG and Dresdner Bank, two of Germanys big three banks, on suspicion of abetting tax evasion by helping clients to shift funds to hard-to-trace accounts in Luxembourg.

The newspaper quoted senior prosecutors in Frankfurt, Duesseldorf and elsewhere saying the investigation now took in some 40,000 account-holders at Commerzbank and 20,000 at Dresdner, together with another 10,000 at other banks. The probe mainly concerns small or medium-sized investors who have placed their money in Luxembourg to avoid having tax deducted from their interest earnings.

The investigation, which has involved hundreds of raids on bank branches, followed the exodus of billions of marks to Luxembourg and other tax havens after Germany slapped a 30 per cent withholding tax on interest income in 1994.

 

Moving funds abroad to avoid that tax is legal, but failing to report interest income to tax authorities in Germany is not.

Die Welt am Sonntag said the customers under investigation were believed to have deprived state coffers of some DM500 million in tax.

Prosecutors allege that banks offered their clients numbered accounts to help to conceal their funds. The banks in turn accuse the authorities of victimising investors who lawfully opened accounts abroad, and say the raids have undermined confidentiality between banks and customers.